Chalk it up to the oddities of the new economy:'s Web site is featured in Forbes magazine's "Best of the Web" issue a few weeks after the Securities and Exchange Commission issued a formal order of investigation into the Atlanta-based company's accounting practices.In August, when Inc. released its financial results for the second quarter and first six months of 2000, the company revealed that the SEC had launched its investigation and subpoenaed documents relating to the company's financial reporting since April 1, 1997.

In particular, the SEC is looking into the company's revenue recognition, software development cost capitalization, royalty costs, and classification of cash receipts. The company previously reported that it had restated and reaudited some of its results in response to inquiries from the SEC.

It is not clear exactly what, formerly Delphi Information Systems, has done to attract the attention of the SEC. The SEC's policy is to neither confirm or deny the existence of any investigation, and executives with, along with the company's auditor, Arthur Andersen, declined to discuss the nature of the SEC investigation.

Dick Baum,'s CFO, provided a formal written statement saying that has diligently worked this year with Arthur Andersen to restate and reclassify the company's financial results, and the company is cooperating with the SEC to help complete its inquiry.

Numbers dilemma

The investigation is not necessarily an indictment of wrongdoing, industry analysts say, but it indicates that there's something irregular in its accounting practices.

"An investigation is just an investigation," says Arthur Fliegelman, vice president and senior credit officer at Moody's Investors Service, New York, and member of the Committee for Improved Corporate Reporting of the New York Society of Security Analysts. "In this country, you're innocent until proven guilty. But any time a company has SEC action taken against it, that's not a favorable occurrence."

Unlike the tax code, companies have some latitude in the way they report earnings. In addition, the Internet has presented new business models, which often don't conform to older accounting methods. "There isn't a whole lot of history in the `right' way do it," Fliegelman says. "And some companies are more aggressive than others."

SEC is clamping down

In an attempt to lure investors, some start-up technology companies may stretch the auditing guidelines in preparing their financial statements-recording revenues when a contract is signed, for example, instead of when services are delivered.

E-commerce software company MicroStrategy Inc., Vienna, Va., is perhaps the most visible example of a company that the SEC is investigating to determine whether it prematurely booked revenues from large, complex contracts in order to report profits rather than losses.

The SEC is clamping down hard on unconventional Internet accounting practices, and a key concern is revenue recognition.

In a staff accounting bulletin issued last December, the SEC states, "revenue should not be recognized until it is realized or realizable and earned" and "revenues are considered to have been earned when the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues."

Meanwhile, shareholders of new e-commerce companies are losing patience. Until recently, many investors did not focus on Internet firms' bottom lines-they only were interested in the top line-thinking that eventually the companies will reach profitability, says Greg Kyle, president of Pegasus Research, a New-York-based Internet research firm. "This summer has changed that picture entirely, and investors are demanding a clear path to profitability."

As for, the company continues to experience operating losses and negative cash flows, and its revenues have dropped from $27.7 million in 1997 to $12.5 million in 1999.

The company's revenue for the first six months of 2000 totaled $5.8 million, compared with revenue of $7.4 million for the same period in 1999. The net loss for the first half of 2000 was $6.3 million, compared with a loss of $7.2 million for the same period in 1999.

To make matters worse for's shareholders, the stock has fallen from $14 in March to $4.62 in early September.

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